Buying a MHP VS Duplexes

Hello all, been reading past posts, watching the videos, seriously considering taking the boot camp.  I currently own 5 duplexes free and clear (10 total units) worth about $550,000 realistically.  They rent for about $675 on average, taxes in the $1,300 range per building.  All built in 2005 so maintenance costs are reasonable.  All homes are block construction (SW Florida) on slab so they’re very durable.There are NUMEROUS duplexes for sale in the area for $110,000 - 125,000, all should rent for $700 - 725 per side.  Reason for higher rent, they have garages, mine do not.  Taxes should be in the $1,500 range, all were built within the last 10 years so maintenance should be reasonable.  One thing I left out is that almost all will be well and septic, so that does add some to the maintenance.Taxes and maintenance figure $3,000 per year, insurance $1,000 per year, misc $500 per year = 4500 per year.  Net realistically should be $12,900 per year for a return of 11% per year give or take.Main difference between the MHP and the duplexes is that there is capital appreciation of the structure.So - the question is where is the better deal, MHP’s or duplexes?  If anyone can educate me on this I would appreciate it very much.  Thank you.

So I was in a similar boat. I own two quads, bought them in in 2011 while the area was still depressed. Since then values/rents have boomed. Been looking to get into something else but can’t seem to find anything around my market that I can get with rents at about 1% of the purchase price which is about the minimum I want. That’s roughly where your duplexes are at it seems. So I started to think outside the box, saw a MHP in my area on LoopNet, found this resource and spent 100+ hours getting smart on MHPs. Got it under contract now. Now, when I size up listings and compare them to the possibilities of MHPs I think I’m too spoiled to settle for those kinds of returns. I might be ruined for other asset classes! When you run long term numbers on your places at 110,000 per duplex bringing in 16K in rent a year with typical operating expenses (+/- 50% of gross) you’re looking at a 7-8 Cap rate. Not bad, especially with todays low interest rates/yields. But with a target of 10 cap for a MHP (and the kind of angling for upside that Frank teaches taking it up from there) it seems to me the returns are much more attractive. Place I have under contract seems to be about at a 10 cap at my PP but I plan on billing back water (and see lot rents going up shortly thereafter) as well as some other changes so I could be realizing a much greater return. Honestly, I’d be quite happy with a 10 cap on its own, everything else it gravy. Seems like one of the powerful aspects of parks is that you’re buying a lot of units per investment dollar so any revenue raising or efficiency gains you drive are way more powerful than what you can realize owning 10 relatively expensive duplex units. But I have to question owning your places outright. Why? If you’re getting an 8 cap why not finance at 4-5% earning the spread on the interest rate VS cap with the banks money while pursuing something else. For instance, if the places are worth 550K and you finance them at 80% LTV you can pull out over 400K. That’s enough to get you into a +/- 2 million dollar park. If you manage a 10 cap there and finance @ 5% 80% LTV or score seller financing you’re using leverage to achieve a much higher overall return.After I get this park under my belt and I’m comfortable with it I’ll likely be doing something similar and looking for another.  

Thanks for the input. To answer your last question, that is exactly the plan, to leverage my assets and either buy more duplexes or a MHP. There really isn’t any MHPs for sale in my area so I’d have to buy at least 4-5 hour drive away. Duplexes are about 45 min away. But I have to say the duplexes are fairly management intensive, maybe the MHPs are a bit less with an onsite manager

Do you all try to get a 10 cap including the managers fees? That would make these very attractive for sure.

Any cap rate should by definition include a management fee for any “sweat equity” such as on-site management. It should be the equivalent of a return you would expect to see from managing other passive investments. Most seem to be willing to eat “managing the manager” type work which seems reasonable.That said, it does seem like 10 cap rate properties are a bit hard to come by, especially the type that meet the Frank-level quality park description. I’ve found one but I’ve had to accept a pesky apartment component to get there. Seems like scouring and Loopnet yields thin gruel. Yes, I’ve found a couple that meet my criteria but there’s usually a catch like a substantial storage unit component etc. But the real upside seems to come from the bill-back/under rent find-rent increase/lot-fill/other expense lowering type scenario. That seems to be where you can take a 9-10 cap and make it a 14-20 cap. Of course, I’m left to wonder, if there’s real turnaround potential to a 14-20 cap should I really be worried about paying an 8-9 cap which isn’t all that bad a return now that you can secure 5% financing?   

What state are you looking in just out of curiosity? There are some advertised in that cap range but who knows if they check out. One shows a great cap rate but it’s clothing optional so I doubt the wife would approve of that!

How often do you all find the advertised cap rate at least somewhat reconciles with what you find in your due diligence period?

I was hoping Frank and a few others would chime in with some words of wisdom.

We buy in the Great Plains and Midwest, although any region is good except you have to be extremely careful in the southeast due to lower lot rents and demand. The 10% cap rates we target are after all management cost, including your personal travel to check on the park occasionally. But our goal is not just 10% cap rates, but cap rates that we can push higher. The dream is 20%, but on many parks, you will top out in the teens.Clothing optional parks, while exciting to look at, do not meet our criteria of lots of demand. We stick with classic family parks in areas that have a significant affordable housing shortage.The parks you will find on-line – and through brokers and every other means – are NEVER at the cap rates they claim. But that’s because they don’t even know how to run numbers correctly most of the time. That’s why this industry has opportunity – because there are so many math (and thinking) errors by the sellers. We once bought a park that was advertised as a 6% cap rate on line, but was actually a 12% cap because the seller had made a huge math error. You will only find these mistakes when you get the full package and run your own numbers. On any park that looks of interest, get the full package and read it.Probably the biggest difference between duplexes and mobile home parks is the sophistication of the sellers. That’s the weak spot and where all the opportunity is.

that have a significant affordable housing shortage.Frank I’m hoping you have a useful data source to share to figure the above answer out?   :)   Thanks in advance!

Thank you. Does the southeast include Florida? I’m just in the investigation phase right now, but I’m not having troubles finding ADVERTISED 10-11 cap rates.

I’m leaning strongly towards doing the MHP instead of the duplexes. I’d prefer not to own any MH’s at all, just the lots. I’m tired of the maintenance headaches from having tenants.

Either way, I will NOT do anything without taking the class first.

 Great thread!!!This was the exact question I have been reviewing. Another Duplex or MHP.I would appreciate more info on" bill-back/under rent find-rent increase/lot-fill/other expense lowering type scenario"Thanks again.

Run the numbers on MHPs vs. duplexes/apartments this way:  The duplex appreciates, fine, something in excess of inflation, but over the long run, probably not much in excess of inflation.  So in 10 years, it might be worth (4%x10 years) = 40% more.  That’s a respectable rate of return.  Add in something for the cash you are getting at a 7-8% cap (typical site-built structure return).  The numbers are decent.But then run the numbers on a MHP.  You are still buying real estate, and it will appreciate too…(!)  Appreciation is not something unique to land with structures on it.  Say you’ve found a typical MHP (that’d be at a 9%-10% cap rate in markets where duplexes/apartments are at a 7%-8% cap rate), so there is more cash for you right up front, even if you do nothing with the property.  You’ll be surprised how much difference it makes to your IRR getting cash ‘now’ rather than waiting 5 - 10 years to sell and realize the appreciation.  Now figure-in that through better operations (e.g. sub-metering water, rebidding trash contracts, putting up a website) and rent increases you can take that 10% cap to 14%.  Now run your numbers.  You’ve just increased the value of that property 40% in the first few months you’ve owned it, and you’ve not even begun to count the additional cash the property will generate for you at a 14% cap rather than the 7%-8% you’d be ‘stuck’ with in traditional real estate.-jl-

Well said Jefferson!
Coach62 I am in FL as well as well (Tallahassee). Where are you located? I have been looking around and there are a ton of MHP but very few strictly lot parks(from what I have seen).